The infamous Matt Taibbi piece in Rolling Stone.
Goldman Sachs returns volley (via NY Post):
The bank’s spokesman, Lucas Van Praag, was more pointed: “[Taibbi’s] story is an hysterical compilation of conspiracy theories,” he wrote in an e-mail. “Notable ones missing are Goldman Sachs as the third shooter [in John F. Kennedy’s assassination] and faking the first lunar landing.”
“We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good,” Van Praag added.
And via Felix Salmon:
Having read your piece about Matt Taibbi’s article in Rolling Stone, I wanted to set the record straight, particularly about “regulatory capture”.
Background: Under the Commodity Exchange Act, the CFTC (for agricultural futures) or exchanges (for energy/metals futures) established speculative position limits. As much as anything else, the limits are intended to prevent market imbalances that would result in failures of the ultimate settlement of the futures contracts.
The CFTC rules exempt “bona fide hedging” transactions from these spec limits. A bona fide hedging transaction was originally understood to be an actual producer/consumer who was selling or buying the underlying commodity and wanted to hedge risk of the price moving up or down. In 1991, J. Aron wanted to enter into one of its first commodity index swap transactions with a pension fund. In order to hedge our exposure on the swap, we wanted to buy futures on the commodities in the index. We applied to the CFTC for exemption from position limits on the theory that even if we weren’t buying the commodity, we had offsetting exposure (in our swap) that put us in a balanced/price neutral position. The CFTC agreed with our argument and granted exemption. By the way, each of the then Commissioners signed off, so it was hardly a secret…
The CFTC published a report in August 2008, indicating that there were few instances when entities would have exceeded spec limits, had they applied to OTC positions.
Yesterday, as you probably know, the Senate Permanent Sub-Committee on Investigations issued a report on wheat futures in which they concluded that divergence between prices for actual wheat v. wheat futures is being caused solely by index investment. The Committee’s recommendation is that hedge exemptions which support indices should be phased out.
Not quite so recently, the elimination of Glass Steagall doesn’t exactly provide a robust argument for regulatory capture. And Taibbi’s bubble case doesn’t stand up to serious scrutiny either. To give just two examples, even with the worst will in the world, the blame for creating the internet bubble cannot credibly be laid at our door, and we could hardly be described as having been a major player in the mortgage market, unlike so many of our current and former competitors.
Taibbi’s article is a compilation of just about every conspiracy theory ever dreamed up about Goldman Sachs, but what real substance is there to support the theories?
We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance of being a force for good.
I’m aware that some people feel that it’s a journalist’s responsibility to “give both sides of the story” and be “even-handed” and “objective.” A person who believes that will naturally find serious flaws with any article like the one I wrote about Goldman. I personally don’t subscribe to that point of view. My feeling is that companies like Goldman Sachs have a virtual monopoly on mainstream-news public relations; for every one reporter like me, or like far more knowledgeable critics like Tyler Durden, there are a thousand hacks out there willing to pimp Goldman’s viewpoint on things in the front pages and ledes of the major news organizations. And there are probably another thousand poor working stiffs who are nudged into pushing the Goldman party line by their editors and superiors (how many political reporters with no experience reporting on financial issues have swallowed whole the news cliche about Goldman being the “smart guys” on Wall Street? A lot, for sure).
Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it. Given all of this, I personally think it’s absurd to talk about the need for “balance” in every single magazine and news article. I understand that some people feel differently, but that’s my take on things.
Andrew Ross Sorkin documents the fight. Joe Weisenthal at Clusterstock fisks the article.
Taibbi is a gifted narrative journalist, whose verbal talents I greatly admire. But financial meltdowns don’t offer villains, for the simple reason that no one person or even one group is powerful enough to take down a whole system. Confronted with this, Taibbi doesn’t back away from the narrative form, or apply it to smaller questions where it is more appropriate, as William Cohan did in House of Cards. Instead, he grabs whoever’s nearest to hand and builds them up into a gigantic straw villian, which he proceeds to bash with a handful of recently acquired technical terms that he clearly doesn’t quite understand. It’s not that everything he says is wrong, but the bits that are true aren’t interesting, and the bits that are interesting aren’t true. The whole thing dissolves into the kind of conspiracy theory he so ably lampooned in The Great Derangement. The result is something that’s not even wrong. It’s just incoherent.
Barry Ritholtz on McArdle’s assertion that there aren’t any villains:
Um, Megan, I am going to have to beg to differ with you. There were many, many identifiable villains who through their own action and inaction, helped create the crisis. There were people who remained slavishly devoted to an outmoded and disproven ideology, which led them to decisions that were indefendable. Some people engaged in utter recklessness when it came to risk management, or such gross irresponsibility that they are not merely morally culpable, but legally also. Then there are those regulators who gave the corporate interests they supervised pretty much everything they asked for. And of course, the people simply trying to grab a free lunch contributed mightily to the collapse.
I have 322 well researched pages that shows as much.
Goldman Sachs was but one of the 5 biggest investment banks that requested from the SEC, and received, an exemption from the net cap rules. This allowed their leverage to balloon from 12-to-1 to as much as 40-to-1.
As a nation, we need to stop pretending this is “too complicated” and start holding the responsible parties accountable . . .
There are plenty of villains around, but no group small enough to be assigned any meaningful measure of responsibility for the financial crisis. Imagine that Goldman Sachs had, say, gone under in the 1998 financial crisis. Imagine that Clinton or Bush had appointed someone else to the SEC from the universe of politically possible candidates. Imagine that Suze Orman had started talking down homeownership in 2003 rather than touting it as a fabulous way to build your net worth. What would be different now? Nothing of any importance, as far as I can tell.
You can point to many people–thousands of bankers, tens of thousands of realtors and mortgage brokers, millions of homebuyers–who did things I really wish they hadn’t, blinded by greed and wishful thinking and arrogance. But when the action of any one person, or firm, requires millions of counterparties taking their own stupid risks, I don’t see how you can really name them the villains of the piece.
This will not, of course, please anyone who wants me to tell them how and why we should get the bankers. For them, the important thing is the conclusion; since we already know it, it is a trivial matter to assemble whatever evidence might help us get the bankers. And since I am not providing them with convenient reasons to get the bankers, it therefore follows that I must be a paid hack protecting my corporate masters.
Meanwhile, Goldman blogging continues apace. Tyler Durden on Zero Hedge on Goldman 360
One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes? The third thing everyone on Wall Street agrees on is that “internal business purposes” usually (and in Goldman’s case, almost exclusively) means proprietary trading.
Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade? Could Goldman please clarify just what “internal business purposes” means in the context of this overarching disclaimer, and also whether Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk? Lucas Van Pragg: the floor is yours.
Update: several readers have presented some other Goldman Sachs and Spear, Leeds and Kellogg form documents that contain an even more crypitc warning in section 4(f) in Use Of Services:
You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.
And today, Sydney Williams at Seeking Alpha:
Here we are once again, on the eve of another record earnings report by Goldman Sachs. Are we back to the old days, or on to something new and different?
We can safely agree that the banking crisis is officially over, as this writer and others have recently argued. Whatever we may draw from the Treasury Department and Federal Reserve’s methods, they’ve worked. Confidence is restored, at least enough to allow market-savvy traders to place the kind of aggressive bets that can reap windfalls for bank profits.
Meredith Whitney, the well-known banking analyst, upgraded her outlook on Goldman Sachs this morning, resulting in the market as a whole making some gains.
We have to give Ms. Whitney her due. After all, she was one of the first to call attention to the problems at Citigroup and other banks, the weakness in the housing industry, and how these might affect the economy as a whole.
However, we think the market’s reaction to Whitney’s comment highlights a serious problem in our nation. Investors today pay far too much attention to quarterly (if not daily) results, and not enough to the long-term picture.
UPDATE: Kevin Drum has two opinions of the Tiabbi piece. Here:
POSTSCRIPT: Someone also asked Ezra about Matt Taibbi’s takedown of Goldman Sachs in the latest issue of Rolling Stone. I finally got around to reading it the other day, and my verdict is simple: it was terrible. Taibbi wrote a terrific article about AIG a couple of months ago, but the Goldman piece was just phoned in, a long series of blustery assertions with essentially nothing to back up any of them. If he wants to claim that Goldman was the wizard behind the curtain of everything from the dotcom boom to last year’s oil spike, he really needs to produce some evidence for it instead of just saying so.
POSTSCRIPT 2: I just learned that Rolling Stone didn’t actually post Taibbi’s article. They only posted a set of excerpts, which is why the online version reads like a long series of blustery assertions with essentially nothing to back up any of them. Unfortunately, unless you read the intro very carefully, it’s not clear that these are merely excerpts. Instead, it just seems like a very badly written article.
So: I retract what I said for now. I still suspect that Taibbi is considerably overstating things, trying to construct a dramatic narrative by blaming Goldman for things that are actually sins of the investment community as a whole, but I won’t know for sure until I read the entire piece.
Well, I’ve now the read the entire piece, and I apologize. (To Taibbi, that is, not the morons at Rolling Stone, who should have either posted the whole thing or done nothing at all.) It’s a very good takedown of the modern financial industry and well worth reading. There are some bits here and there that I’m not sure Taibbi gets quite right, and I do think that he made a mistake in casting Goldman Sachs as the “engineer” of every bubble in the past century rather than merely an unusually big and enthusiastic member of a predatory gang that’s been ripping us off for a long time. This gives the piece a conspiratorial air that allows Goldman to laugh it off instead of being forced to engage with it, and that’s too bad. They — and everyone else on Wall Street — should be forced to engage with it.
Beyond that, there are undoubtedly some mistakes in the piece, as well as places where Taibbi goes unnecessarily over the top. I’m still not sold on carbon permits being the next big bubble, for example. But those are quibbles. Overall it’s a striking portait of an industry — not just a single company — of almost unbounded greed and recklessness. Worth reading.
UPDATE #2: On those profits, Michelle Malkin
Charlie Gasparino in the Daily Beast
UPDATE #3: Arianna Huffington
Pretty much Matt Taibbi’s entire blog, but here’s two posts, here and here.
UPDATE #4: Stephen Gandel at Time
UPDATE #5: More Charlie Gasparino in the Daily Beast
UPDATE #6: Dean Starkman at CJR on Taibbi
Ezra Klein on the Starkman piece
Kevin Drum on the Starkman piece
UPDATE #7: William D. Cohan in Time:
“A recent story in Rolling Stone, of all places, in which the author described Goldman as a “great vampire squid wrapped around the face of humanity,” has been particularly troubling to him. “Oddly enough, the Rolling Stone article tapped into something,” he says in an interview. “I saw it as gonzo, over-the-top writing that some people might find fun to read. I was shocked that others saw it as being supporting evidence that Goldman Sachs had burned down the Reichstag, shot the Archduke Ferdinand and fired on Fort Sumter.” Suddenly a firm that few Americans know or understand has become part of the zeitgeist, the symbol of irresponsible Wall Street excess, the recovery from which has pushed the nation’s treasury to the brink. (See 25 people to blame for the financial crisis.)
It’s an odd contradiction: an excelling company being reviled in a country that embraces the profit motive. And without question, Goldman Sachs under Blankfein has recalibrated, in very large numbers, its place as Wall Street’s most astute, most opaque and most influential firm. In the first and second quarters of 2009, the company earned $5.3 billion in net income, the most profitable six-month stretch in Goldman’s history. Goldman’s stock has more than tripled since its low last November, to more than $160 per share.
The U.S. unemployment rate has risen too, nearing 10%. In stark contrast, Goldman Sachs has set aside some $11.36 billion so far in 2009 in total compensation and benefits for its 29,400 employees. That’s about on pace with the record payout the firm made in 2007, at the height of the bubble. Thanks to Andrew Cuomo, the New York State attorney general, we know that in 2008, while Goldman earned $2.3 billion for the year, it paid out $4.82 billion in bonuses, giving 953 employees at least $1 million each and 78 executives $5 million or more (although Goldman’s top five officers, including Blankfein, declined a bonus).
Goldman’s riches have deflected the spotlight from what should be great story fodder: Blankfein’s personal journey from one of New York City’s poorest neighborhoods to its most élite investment bank — and his astounding rise within Goldman. Instead, he has to explain Goldman’s performance — and connections — in the face of the nation’s epic financial calamity.”
Lawerence Delevingne at Clusterstock:
Somewhere, Matt Taibbi is smiling. There’s something validating about being dismissed by the top dog himself.
Bess Levin at Dealbreaker
New York Magazine:
You’re right, William. It is a crime that the American people have wasted so much time asking questions in an attempt to figure out whether the people controlling all the money in our pension plans and bank accounts are trustworthy and will not completely fuck up the system again and then run into their barricaded second and third homes with their gold bars, leaving the rest of use mewling and starving in the streets. We’re sorry, how selfish of us. Do tell us about Lloyd’s “personal journey.”
Charlie Gasparino in Daily Beast:
Paranoia might not be too strong a word to describe the mind-set. People inside Goldman tell me that some senior executives say they believe the onslaught of negative stories detailing Goldman’s manifold ties to upper levels of government, charges that it somehow fraudulently profited from the subprime crisis, and now the press about the firm’s record earnings is so out of proportion to reality that the coverage contains an element of anti-Semitism—subtly playing off the racist myth of a conspiracy of Jewish bankers controlling the world for their own benefit. (Goldman was founded by a Jewish immigrant, and after years of being run by Gentiles Jon Corzine and Hank Paulson, is once again run by a Jew, Lloyd Blankfein.)
Blankfein, I am told, isn’t paranoid but really concerned about being placed in an untenable position for any CEO who needs to retain talent. If he doesn’t pay his people, many will simply jump ship to other firms—including private-equity firms—that will. If he does, he faces endless negative coverage about how Goldman is making its partners rich at the expense of taxpayers who bailed out the firm last year.
This quandary has resulted in some very serious discussions at Goldman to attempt to spin the bonus issue in the best possible (or least damaging) way. The Daily Beast has learned that Goldman is considering “a menu” of options: One possibility is to pay the vast majority of the bonus in stock. On Wall Street, executives receive a combination of stock and cash, with the cash portion comprising 65 percent of the total bonus. Goldman may just flip that around.
John Cook at Gawker:
Goldman Sachs is taking the whole “bloodsucking squidmonster” thing pretty seriously. CEO Lloyd Blankfein is losing sleep over how to pay out $11 billion in taxpayer financed bonuses without catching hell from anti-Semites like everybody. Heavy weighs the crown.
CNBC’s Charlie Gasparino reports in the Daily Beast that Blankfein is “obsessed” with the hits that Goldman’s image has taken after getting a $10 billion capital injection from taxpayers and $13 billion out of the AIG bailout. He’s “looks like shit” because he’s so worried about what’s going to happen in bonus season, when he has to distribute that $11 billion bonus reserve. He’s looking for a “brand manager” to rescue the firm’s image, and Goldman insiders say that anyone who’s royally pissed off that Goldman is simply harvesting taxpayer money as profits and handing it out to its obscenely wealthy (and occasionally pedophilic) employees in the form of bonuses really just hates Jews
Bess Levin at Dealbreaker:
Two things are troubling in Charlie Gasparino’s latest story on Goldman Sachs, which has apparently been freaking out over how it’s going to manage the 85 Broad haters come bonus season, when Lloyd Blankfein is expected to make it rain golden showers. The first is that you might get the mistaken impression Chaz is an anti-Semite. This could not be further from the truth. Charlie loves Jews. Some of his best friends are Macabis and since I’ve known him he always takes the time to inquire “how the dreidel spinnin’s goin’, Heeb girl” come December. So please, people e-mailing us, get off CG’s ass for the description of current Goldman management below.
UPDATE #8: Dave at The League on Taibbi